The Monster with Three Eyes Can Help You Avoid Claims of Joint Employment

Some monsters are scary. There’s Godzilla, who terrorized Tokyo and whose name in Japanese translates roughly to gorilla-whale. (Thanks, wikipedia!) There’s Frankenstein’s monster, Dracula (also Count Chocula), and the Creature from the Black Lagoon, which was filmed in terrorizingly implausible black and white 3-D.

But on the other hand, some monsters are friendly and educational, like Cookie Monster, E.T., or, dare I say, Elmo. (“Kids look at these crayons… Kids look at these crayons.”)

This post is about a friendly and educational monster: The Monster with Three Eyes.

If you want to help your business avoid claims of joint employment, remember the Monster with Three Eyes when drafting contracts with staffing agencies or other vendors that supply labor.

Confession: The “three eyes” really should be the letter I three times, but when I try to write that out, it looks like “three is,” which is neither memorable nor a suitable name for a monster, even a friendly and educational one. So we go with three eyes. When I say it aloud — making sure first that no one is listening because why would a person say something like that aloud for seemingly no reason? — it sounds the same.

Here are the three main ingredients you’ll want to include in each contract with a vendor that supplies labor:

1. Identify the sole responsibilities of the vendor with respect to its employees. List these responsibilities. List the various obligations of an employer — things like properly recording all hours worked, paying overtime, paying a minimum wage, handling payroll, reimbursing expenses, providing meal and rest breaks, stuff like that. List these responsibilities specifically in the contract. Don’t just say the agency agrees it is the sole employer. Remember, joint employment is a legal doctrine that holds your business responsible if the vendor failed to do something it’s supposed to do. If your found to be legally liable, you want to be able to point to a specific contractual obligation the vendor failed to satisfy.

2. Indemnify. The indemnification provision needs specificity. It should require the vendor to indemnify your business for any claims of joint employment and for any claims arising out of the vendor failing to comply with any of its contractual obligations. That’s why you’re listing the specific contractual obligations of the vendor. When seeking indemnification, you want to be able to point to a specific contractual obligation the vendor failed to meet, which triggers the indemnification requirement.

3. Insure. Insurance requirements are just as important as indemnity. The indemnity clause is of no value if the vendor goes out of business or is liable for more than it can pay. Vendors who supply labor should be able to demonstrate that they have sufficient insurance so that if there is a joint employment claim and your business seeks indemnity, someone (the insurer) has the ability to pay.

Because joint employment is a legal doctrine that can hold your business fully liable for the misdeeds of a vendor, the key to limiting your business’s exposure is a carefully drafted contract. Even if your business is jointly liable under the law, you want to have a contractual claim against the vendor that failed to do what it was supposed to do, along with indemnity and insurance so that your business can be made whole.

So remember the Monster with Three Eyes when drafting or reviewing your next contract with a vendor that is providing laborers. If the vendor fails to meet its legal obligations, a contract drafted with these lessons in mind will be the gorilla-whale you need to get out of paying for the vendor’s mistakes.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Why Don’t Companies Offer Healthcare Benefits to Independent Contractors?

 

I found this on buzzfeed, while doing academic research for this blog post.

In the business world, it’s not quite as funny when good intentions are misunderstood. Which is why companies generally can’t offer healthcare benefits to independent contractors. Even if they would like to, they can’t.

Good intentions would be misunderstood, and the effect of offering healthcare coverage to independent contractors would likely be that they are turned into employees.

Why?

The law limits who can sell health insurance coverage. You need a license. It’s the same reason I can’t work as an Aquatic Antifouling Paint Operator in New York State. If you want to commercially apply antifouling paints, which are pesticides, on vessel hulls, boat bottoms, or other other marine surfaces to inhibit the growth of aquatic organisms, you need an Aquatic Antifouling Paint Operator license. (Apply here.)

Companies that aren’t licensed to sell healthcare insurance can’t go around selling healthcare insurance. But there’s a narrow exception, which allows companies to offer healthcare insurance to its employees. The exception doesn’t extend to vendors, suppliers, or independent contractors. Only employees.

Some of the large rideshare app companies have advocated for legal reform that would allow them to offer more benefits to independent contractor drivers. But there’s not much they can do right now. Companies without a license to sell healthcare insurance can only offer healthcare insurance to its employees, not to independent contractors.

Some companies have begun to get creative in an effort to offer more benefits to independent contractor drivers. According to benefitsnews.com, some app companies are beginning to offer limited benefits, such as access to accident insurance, free online college courses, and professional certifications.

Some states, such as New York, have considered legislation that would expand the availability of benefits to independent contractors, but the current state of the law severely restricts what companies can do.

The legal problem for companies who want to offer more benefits to contractors is not just that they can’t sell healthcare insurance to non-employees. It’s also that the more benefits they offer to contractors, the more those contractors may start to resemble employees. Since U.S. law currently sees the Employee vs. Independent Contractor issue as binary — you can only be one or the other — companies who offer increased employee-like benefits to contractors run the risk that the contractors will be deemed their employees, which creates a whole big mess of other legal problems.

A company might wish to provide healthcare coverage to independent contractors, but the company’s good intentions would be misunderstood. Which is also why if you want a haircut and dye, you should just type it into your phone’s calendar instead of just telling Siri.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Can Your Business Be Liable for Sexual Harassment by an Independent Contractor?

Independent contractors sexual harassment

Damage can come from unexpected places.

Earlier this year, Brock Holt of the Boston Red Sox landed on baseball’s Injured List after his two-year old son poked him in the eye. Baseball players accept the risk of injury, but that’s not a way you’d expect to get hurt.

I think you see where I’m going here. Don’t let an independent contractor become Brock Holt’s son. Yes, a business can be liable for harassment by a contractor — if it fails to respond appropriately to a complaint. If one of your employees complains of harassment by a contractor, pay attention.

According to the Equal Employment Opportunity Commission (EEOC), businesses can be liable for harassment by non-employees if the business knows about the harassment and fails to take reasonable steps to prevent it. EEOC Guidance says:

The employer will be liable for harassment by non-supervisory employees or non-employees over whom it has control (e.g., independent contractors or customers on the premises), if it knew, or should have known about the harassment and failed to take prompt and appropriate corrective action.

That means you can’t just say, “It’s not our employee so we can’t do anything about it.” Investigate. Interview witnesses. Take statements. If there’s something there, act upon it.

If the bad actor is a contractor, options may include:

  1. Terminating the independent contractor relationship, 
  2. Limiting the contractor’s access to your facility,
  3. Poking out the contractor’s eye (or both eyes, if the harassment is particularly egregious), or 
  4. Any other steps to prevent bad behavior. 

My wife, who is in HR, says #3 is not an appropriate response, so I stand corrected. Don’t do #3. The other options are still good though.

As for #4, you should not discipline an independent contractor, but you can issue a stern warning to that contractor that the relationship will be terminated if there are any further complaints. Just don’t call it “discipline.” Disciplinary action is a sign of control, which can be used as evidence that the contractor might really be an employee. The last thing you need if one of your employees is being harassed by a contractor is to convert that contractor into your employee. 

Whatever you decide, do something.

While businesses might not expect that they could be held liable for bad acts by a contractor, the risk is real. Employers have a responsibility to provide their workers with a workplace that is free from harassment. If you allow a contractor to create a hostile work environment, your business can be liable for allowing that environment to persist. The employer’s responsibility is to take “prompt and appropriate corrective action.” 

For Brock Holt, terminating the relationship with the wayward eye-poker was not an option. (His wife reportedly vetoed that proposal. She is probably in HR.) But for businesses whose contractors are accused of harassing employees, terminating the relationship may be the best decision. 

So the answer is yes. Business have a responsibility to provide a workplace that is free from harassment, and the failure to do so may result in liability, even if the harassment is coming from a non-employee. Busiensses can be liable for harassment by contractors if the business knows or should know about the harassment and fails to take prompt and appropriate corrective action.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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How Do I Run a Background Check on an Independent Contractor?

How do i run a background check on an independent contractorAfter the events of this past weekend, I don’t have to say anything about the risks involved in allowing dangerous people onto your premises. Before retaining an independent contractor who will have access to your business’s facilities, people, or information, it makes sense to know who you are inviting into your house.

An employment-style background check is often appropriate, but there are a few important differences between background checks being run before hiring an employee and before engaging a non-employee contractor.  [We’re talking here about 1099 contractors, not staffing agency employees.]

If the background check is being run by a third party, then the federal Fair Credit Reporting Act (FCRA) is likely to apply. But the rules are different for pre-employment background checks and non-employment background checks.

For pre-employment background checks, certain disclosures must be made before the background check is obtained, and additional disclosures have to be made before you take an “adverse action” based on the result of the background check, such as revoking a conditional offer or not hiring someone. These additional requirements apply only for background checks being run “for employment purposes.”

Ok, Todd. These don’t sound too burdensome. Can’t I just follow the more burdensome pre-employment rules just to be safe?

Yes, sort of. But a few words of caution are in order.

First, your User Agreement with the background check company requires you to certify to the background check company the purposes for which you will be requesting background checks. Review your agreement to see whether you certified that you would only run background checks “for employment purposes.” 

Since this is not a background check being run “for employment purposes,” you need to have another permissible purpose under the FCRA. The law lists several alternatives. Two are likely to apply:  You may obtain a background check (1) “in accordance with the written instructions of the consumer” or (2) if you have “a legitimate business need for the information in connection with a business transaction that is initiated by the consumer.” Here, the “consumer” would be the individual contractor.

You may need to amend your agreement with the background check company before  you run any background checks on potential independent contractors. You never want independent contractors to be considered your employees.

Second, check the federal forms you give to the individual before you run the background check. You do not want to give an independent contractor a Disclosure form or an Authorization form that says your company will run a background check “for employment purposes.” Many generic forms include that phrase because it’s a term of art used in the FCRA. For background checks being run on independent contractors, you don’t want to have the contractor sign a document that can be used to argue you were creating an employment relationship, rather than an independent contractor relationship.

Finally, check the state law forms you are using. If your background check company supplied you with a suite of forms, those forms likely include various disclosures required under state laws. States with additional pre-employment background check requirements include California, Minnesota, New Jersey, New York, Oklahoma, and Washington State, among others. Almost all of the required state law disclosures, however, apply only to background checks being run “for employment purposes.” Be careful not to use forms with language that could be used to argue you were creating an employment relationship, rather than a contractor relationship.

Final thoughts:  Running a background check on an independent contractor can be a good idea and can bring you and your business some piece of mind. Be careful, though, that you don’t solve one problem by inadvertently creating another.

Background check pitfalls can be prevented if you use the correct forms and documents ahead of time. It’s not that hard to do this correctly, but it requires a some extra attention and care.

If you’d like more information, you can review two earlier blog posts I’ve written on this topic, here and here. Or feel free to contact me directly at tlebowitz@bakerlaw.com.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Do Over for California’s ABC Test? Retroactivity Issue is Headed Back to the State Supreme Court

Independent contractor ABC Test cow

“Placido Domingo’s pretty great, but I also love Pavarotti.”

In Hampshire, England, there is a veterinarian who sings opera to cows.

Now if your spidey-sense is as tingly as mine, you’ll immediately realize there is something wrong with this picture. It’s obvious, right? It should be an opera singer who sings opera to cows, not a veterinarian. Vet school does not include the proper classical training.

While this Hampshire vet has apparently not realized he is out of his lane, the Ninth Circuit Court of Appeals last week did acknowledge it was operating out of its lane in a major case involving independent contractors. The Ninth Circuit is withdrawing a major decision it released in May 2019 and sending that issue to the California Supreme Court instead.

In May, we wrote about the ruling by the federal Ninth Circuit Court of Appeals that’s being withdrawn. In that case, the Ninth Circuit ruled that California’s ABC Test (the Dynamex Test) for deciding the Independent Contractor vs. Employee question would apply retroactively. (You can read my seething critique of that ruling, Vazquez v. Jan-Pro, here.)

The Dynamex decision is the one in which the California Supreme Court made up an ABC Test as the new standard for determining whether someone is a contractor or an employee under California’s wage and hour laws (claims of overtime, minimum wage, meal and rest breaks, etc.). The ramifications are enormous for California businesses.

Now back to the May 2019 Vazquez ruling. In that case, the Ninth Circuit ruled that California businesses should have been applying the ABC Test that was made up in Dynamex, even though that test did not yet exist. Seems pretty unfair, doesn’t it? Very unfair.

Last week, the Ninth Circuit withdrew its ruling in the May 2019 Vazquez case. This is half good news, not all good news.

The Ninth Circuit didn’t concded that its May 2019 decision was wrong (even though it was, heh heh). Rather, the Ninth Circuit decided that — like a veterinarian singing opera to cows — it had been operating out of its lane. The Ninth Circuit now says that the California Supreme Court — not the federal Ninth Circuit Court of Appeals  —  should be the one to decide whether the ABC Test applies retroactively.

The California Supreme Court case is definitely one to watch. Industry groups from around the country are likely to weigh in. Many will file amicus briefs (non-party “friend of the court” memos) to try to persuade the court that retroactivity would be unfair and would have significant negative effects on California businesses and the state’s economy.

For now, the question of whether the Dynamex ABC Test applies retroactively is again unresolved. That means there is a period of a few years extending back from April 2018 in which nobody knows what the test is for determining whether someone was then an employee or an independent contractor under California’s wage and hour laws.

That’s important because the are a lot of lawsuits alleging that independent contractors are misclassified. Some have been decided, some have not. Could some cases that were already decided be reopened?

We’ll keep an eye on this case as it makes its way through the California Supreme Court. We’ll also be watching for new developments among bovine opera aficionados. I want to know whether the cows think this veterinarian singer is any good.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Can Study Time be Considered Employment? Yes, Says a Federal Court

Is study time compensable employmentSam Cooke admittedly didn’t know much about history, didn’t know much about biology, didn’t know much about a science book, and didn’t know much about the French he took.

That’s probably because he didn’t study.

Studying can have its rewards, but can those rewards include being paid to study? Yes, says a federal court in Arizona—at least under one set of facts.

Under the Fair Labor Standards Act (FLSA), time spent working must be compensated. In Julian v. Swift Transportation, the court had to decide whether study time was working time.

As part of the new hire trainee process, potential new drivers for a transportation company were provided a three-day period of orientation, then were sent for six weeks of paid training with a mentor. During the paid training period, the newbies were required to study in preparation for company-specific new driver tests. Some of the study time was spent on the clock during the 8-hour training day, but some of the required study time was performed while off-the-clock in “sleeper berth” time.

The court ruled that, because the company actively stressed the importance of studying, even during sleeper berth time, this time was compensable “employment.” In this case, the study time had to be paid.

This ruling is limited to the facts of this case and certainly does not mean that all study time for new hires is compensable. Sorry, Sam Cooke. But here, where workers were on the road with a mentor for a six-week training program and were expected to study frequently, the study time was determined to be working time.

Now, I don’t claim to be an A student, but I’m trying to be. For maybe by being an A student, baby, I can win your love for me. (And an extra paycheck?)

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Future of “Joint Employment” Test May Be at Issue, as NLRB Chair Files Complaint Against NLRB’s Inspector General.

F35D8CDD-3497-4FCC-83D8-732CC87B195A

From the county sheriff’s scratch-and-sniff twitter account

Police officers in Clay County, Missouri were searching for a suspect wanted for felony possession. They brought out the K9 crew. The suspect was hiding and, so far so good. But then…

According to Fox 4 in Kansas City, the suspect passed gas so loudly that he gave his location away. The police sniffed him out and cuffed him. Stinks for that guy.

There’s another search-and-destroy mission going on at the NLRB. It’s a power struggle that could be described as a complicated game of cat vs. mouse vs. cat, and — bizarre as it seems — the result of this internal power struggle may ultimately decide the test for joint employment.

Board Chairman John Ring is trying to sack NLRB Inspector General David Berry, who is trying to disqualify Republican-appointed Board member William Emanuel from participating in two key joint employment cases. Member Emanuel is likely to be the deciding vote in favor of a stricter, more pro-business definition of joint employment in either of two significant joint employment cases before the Board. (The cases are Hy-Brand and McDonald’s.)

According to this piece of excellent reporting by Bloomberg Law’s @HassanKanu, Chairman Ring has filed a formal complaint against Inspector General Berry, seeking to have him removed from his post for inappropriate conduct. The complaint, according to Kanu, alleges that Berry has mistreated agency employees, and it references an EEOC complaint filed againt Berry.

So how does this affect joint employment?

Inspector General Berry has been the driving force behind efforts to disqualify Member Emanuel (R) from participating in two key joint employment cases — the Hy-Brand case (in which the Board tried to overturn the Browning-Ferris joint employment test) and the pending McDonald’s case.

Berry claims that Member Emanuel has a conflict of interest that prevents him from particpating in these two cases, stemming from Emanuel having been a partner at the Littler law firm.

If Berry is removed, a new Inspector General may view the conflict issue differently.

From my point of view, there’s no conflict and Member Emanuel should be allowed to participate. For those of you who like to peek behind the curtain, here is a copy of the amicus brief that I filed on behalf of the Restaurant Law Center. The brief argues in support of McDonald’s position that Member Emanuel should not be recused. (There have been similar efforts to try to recuse Ring too.) But that issue remains unresolved.

If a new Inspector General concludes that there is no conflict, then a three-member Republican majority of the Board is likely to rule, at its first opportunity, that the test for determining joint employment should be changed.

The Hy-Brand decision in late 2017 described the test the Republican majority wants to implement. Read more here. The test the Board wants to implement would make it much harder to prove that joint employment exists under federal labor law. Although the Board adopted the new test in the Hy-Brand case, it later withdrew the Hy-Brand ruling because of the conflict issue. The Board wants to go back to the Hy-Brand test but needs to clear up the conflict/recusal issue first.

If Inspector General Berry is forced out, the recusal obstacle could go away.

The recusal issue could also go away if the Board just sits on the pending McDonald’s case until October. September 2019 marks two years since Member Emanuel was appointed to the Board, and any conflict issue related to his previous role as a partner at the Littler firm should drop off. There are two ethics rules in play. One has a one-year lookback period, and the other has a two-year lookback period. If the Board delays deciding the McDonald’s case, the conflict issue might just go away because of the passage of time. (More detail in the amicus brief, here.)

So where does that leave us? Ring is going after Berry, who is trying to interfere with Ring’s effort to adopt a new pro-business definition of joint employment. Sound complicated? That’s high drama within the NLRB!

Will Berry survive the complaint? Will Ring oust his rival? Will Emanuel be allowed to participate in joint employment decisions? Will the Board find a way to implement its desired new definition of joint employment? Can the whole recusal issue be avoided if the Board just waits until October before doing anything? Can the Board get around the whole recusal issue by relying on the rulemaking process to implement a new test for joint employment?

There’s a lot to keep watching here. A change to the test for joint employment would be welcomed by the business community.

Until then, keep checking here for the latest developments on joint employment, and keep checking Fox 4 in K.C. for the latest developments on suspects who fart away their hiding places.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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